Cleveland Corporation is interested in acquiring Lewis Tool Company by swapping 0.4 share of its stock for each share of Lewis stock. Certain financial data on these companies are given in the following table. Item   Cleveland Corporation   Lewis Tool Earnings available for common stock   $200,000   $50,000 Number of shares of common stock outstanding   50,000   20,000 Earnings per share (EPS)   $4.00   $2.50 Market price per share   $50.00   $15.00 Price/earnings (P/E) ratio   12.5   6 Cleveland has sufficient authorized but unissued shares to carry out the proposed merger. How many new shares of stock will Cleveland have to issue to make the proposed merger? If the earnings for each firm remain unchanged, what will the post-merger earnings per share be? How much, effectively, has been earned on behalf of each of the original shares of Lewis stock? How much, effectively, has been earned on behalf of each of the original shares of Cleveland Corporation’s stock?

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Stockholder's Equity

The stockholders’ equity (often referred to as the book value of the company) is the number of assets available to the stockholder after its entire liabilities is paid off. The stockholders’ equity is also sometimes referred to as owner's equity. The stockholders’ equity or book value generally includes common stock, treasury stock retained earnings. It is an indicator of a company's financial strength and is an important item on the company's balance sheet.